Don’t Underestimate the Outsider

You can’t always trust the experts—sometimes it’s the outsiders who hit the nail on the head.

In an essay for the Wall Street Journal, Gregory Zuckerman shows how this happened with the natural gas fracking boom as well as the 2007-08 housing crisis.

He notes how people like Alan Greenspan and Warren Buffett had believed that U.S. natural gas supplies were on their way down, and prices were on their way up. Zuckerman says the opposite proved true:

“Instead, the U.S. has so much cheap natural gas today that it is set to export it. The country is also pumping 7.9 million barrels of oil a day, up more than 50% since 2006 and the most in nearly 25 years.”

Zuckerman mentions some of the underdogs who came out on the right side of the natural gas market. It was an engineer of George Mitchell’s underperforming natural gas company who successfully developed fracking in 1998. It was the impoverished boy Harold Hamm who grew up to be worth $14 billion for his North Dakota oil discovery.

In the case of the 2007-08 housing collapse, Zuckerman says that Fed chairmen Alan Greenspan and Ben Bernanke did not see the meltdown coming, while some unknowns managed to strike it rich with their unexpected preparedness:

“In 2006, Andrew Lahde was an out-of-work 35-year-old stuck in a cramped one-bedroom apartment; then he made tens of millions of dollars betting against subprime mortgages. So did Michael Burry, a doctor-turned-stock investor in northern California with Asperger’s syndrome.”

Often, though, it’s just easier to trust the experts and go with the flow, despite theory that speaks differently. As Zuckerman notes,

“Wall Street talks up the importance of being contrarian. But in 2007, most traders subscribed to the mantra that the Fed wouldn’t let housing crumble or that the boom would continue, while others couldn’t find a good way to short subprime mortgages. They left it for the amateurs to figure out.”

While experts, governments, and even mavericks can fail, it’s good to remember that sometimes the little guy has the best ideas.